The macroeconomic indicators for the U.S. economy are decidedly mixed. U.S. industrial production is growing at a slowing rate, as is U.S. gross domestic product, but the sluggishness in industrial production is more pronounced and thus makes the news cycle and impacts perception. The sluggish trends in manufacturing and mining will hinder robust growth in the overall economy into 2016. U.S. nondefense capital goods new orders, a proxy for business-to-business activity, is below the year-ago level, though the rate of decline to date, at 2.4 percent, is milder than normal (that’s the good news). A typical length of decline puts the end of the new orders downturn in March 2016. We attribute much of the decline to contraction within U.S. machinery new orders. In particular, U.S. Mining Machinery New Orders for the 12 months through August are down 34.3 percent from this time last year. These negative trends, coupled with the lower capacity utilization rates for manufacturing and mining, will constrain momentum within the U.S. for the next two quarters.
However, there are reasons for confidence for 2016 as there are some positive signs for our macro outlook. The majority of U.S. total retail sales sectors are positive. A strong consumer sector will carry the economy and provide HARDI members with willing and able customers on the residential side of the business. U.S. housing starts are on the rise, and U.S. retail sales for automobiles are strong. These indicators help confirm our expectations of overall consumer strength and signal that the consumer is willing to buy big-ticket items. Developing market trends in auto production will also aid resurgence in manufacturing for the overall U.S. economy in early 2016. The utilities segment of industrial production bumped up along with an increase in capacity utilization. The recent surge is the first since August of last year and is a good sign in the midst of a predominantly slowing economy.